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Valuing future cash flows with non separable discount factors and non additive subjective measures: Conditional Choquet Capacities on Time and on Uncertainty

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  • Robert Kast
  • André Lapied

Abstract

We consider future cash flows that are contingent both on dates in time and on uncertain states. The decision maker (DM) values the cash flows according to its decision criterion: Here the payoffs’ expectation with respect to a capacity measure. The subjective measure grasps the DM’s behaviour in front of the future, in the spirit of de Finetti’s (1930) and of Yaari’s (1987) Dual Theory in the case of risk. Decomposition of the criterion into two criteria that represent the DM’s preferences on uncertain payoffs and time contingent payoffs are derived from Ghirardato’s (1997) results. Conditional Choquet integrals are defined by dynamic consistency requirements and conditional capacities are derived, under some conditions on information. In contrast with other models referring to dynamic consistency, ours doesn’t collapse into a linear one because it violates a weak version of consequentialism.

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  • Robert Kast & André Lapied, 2008. "Valuing future cash flows with non separable discount factors and non additive subjective measures: Conditional Choquet Capacities on Time and on Uncertainty," Working Papers 08-09, LAMETA, Universtiy of Montpellier, revised Jun 2008.
    • Handle: RePEc:lam:wpaper:08-09
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    References listed on IDEAS

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    1. Robert Kast & André Lapied & Pascal Toquebeuf, 2008. "Updating Choquet Integrals , Consequentialism and Dynamic Consistency," ICER Working Papers - Applied Mathematics Series 04-2008, ICER - International Centre for Economic Research.
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    12. Alain Chateauneuf & Robert Kast & André Lapied, 2001. "Conditioning Capacities and Choquet Integrals: The Role of Comonotony," Theory and Decision, Springer, vol. 51(2), pages 367-386, December.
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    Cited by:

    1. Kast, Robert & Lapied, André & Roubaud, David, 2014. "Modelling under ambiguity with dynamically consistent Choquet random walks and Choquet–Brownian motions," Economic Modelling, Elsevier, vol. 38(C), pages 495-503.
    2. Driouchi, Tarik & So, Raymond H.Y. & Trigeorgis, Lenos, 2020. "Investor ambiguity, systemic banking risk and economic activity: The case of too-big-to-fail," Journal of Corporate Finance, Elsevier, vol. 62(C).
    3. Robert Kast & André Lapied, 2010. "Dynamically consistent Choquet random walk and real investments," Working Papers halshs-00533826, HAL.
    4. David Roubaud & Alain Lapied & Robert Kast, 2017. "Modelling under ambiguity with two correlated Choquet-Brownian motions," Economics Bulletin, AccessEcon, vol. 37(2), pages 1012-1020.
    5. André Lapied & Robert Kast, 2010. "Dynamically consistent Choquet random walk and real investments," Working Papers 10-21, LAMETA, Universtiy of Montpellier, revised 2010.
    6. Tarik Driouchi & Lenos Trigeorgis & Raymond H. Y. So, 2018. "Option implied ambiguity and its information content: Evidence from the subprime crisis," Annals of Operations Research, Springer, vol. 262(2), pages 463-491, March.
    7. Robert Kast & André Lapied, 2010. "Dynamically consistent Choquet random walk and real investments," Working Papers hal-02817702, HAL.
    8. Rossella Agliardi, 2017. "Asymmetric Choquet random walks and ambiguity aversion or seeking," Theory and Decision, Springer, vol. 83(4), pages 591-602, December.
    9. Gao, Yongling & Driouchi, Tarik, 2018. "Accounting for ambiguity and trust in partial outsourcing: A behavioral real options perspective," Journal of Business Research, Elsevier, vol. 92(C), pages 93-104.
    10. Driouchi, Tarik & Trigeorgis, Lenos & So, Raymond H.Y., 2020. "Individual antecedents of real options appraisal: The role of national culture and ambiguity," European Journal of Operational Research, Elsevier, vol. 286(3), pages 1018-1032.

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